Final answer:
The impact of changes in the monetary base on the money supply is weakened when the currency ratio increases. A currency's appreciation indicates an increase in value, while depreciation indicates a decrease. Central bank monetary policy efficacy can be influenced positively or negatively by changes in exchange rates and trade balance.
Step-by-step explanation:
When the currency ratio increases, the impact of changes in the monetary base on the money supply is weakened. This is because the currency ratio refers to the fraction of the monetary base that the public wishes to hold in the form of currency (as opposed to deposits). Thus, when the ratio increases, a larger proportion of the monetary base is held as currency, and less of it is available to support a larger multiple of bank deposits through the money multiplier process. Consequently, an increase in the monetary base leads to a smaller proportional increase in the money supply.
When a currency appreciates, it means that it has increased in value relative to other currencies; conversely, when it depreciates, it has decreased in value. A stronger currency can buy more of a foreign currency, indicating an increased purchasing power internationally. A weaker currency buys less of a foreign currency, indicating decreased purchasing power.
For the nation's central bank, changes in exchange rates and the corresponding changes in the balance of trade that amplify monetary policy can be a double-edged sword. It could be beneficial if it enhances the efficacy of monetary policy but could also lead to undesirable outcomes if these changes lead to excessive exchange rate volatility or disrupt the balance of trade.
Regarding the expansion of nominal GDP following a central bank's action, if the central bank increases the money supply by $100 billion, and assuming the velocity of money is 3, the nominal GDP would potentially expand by $300 billion, according to the formula MV = PQ, where M is the money supply, V is the velocity of money, P stands for the price level, and Q represents the real GDP.